Wednesday, June 17, 2015

ORCL Q4 2015 Earnings

Today, after market close, Oracle Corporation (ORCL) released their Q4 2015 earnings. Oracle’s earnings were severely weakened by the strong US dollar and related foreign currency headwinds. The currency headwinds alone turned what would otherwise have been solid single digit growth in ORCL’s core competencies into single digit decreases. For example, total revenue fell 5 percent, but without the currency the change would have been a positive 3 percent. Perhaps most importantly, Oracle’s primary cloud component saw an increase of 29% while the pro forma growth (excluding currency headwinds) saw an increase of 35%. The market’s reaction was overwhelmingly negative with ORCL showing a decrease of over 6% in after-hours trading Wednesday. This decrease brings ORCL down to $42.10 (7:10 P.M.) slightly below our purchase price of $42.25. A factor that contributes to this earnings miss is analysts over-estimates of fourth quarter growth as salespeople rush to meet quotas in the end of ORCL’s fiscal year 2015. The financial model for ORCL has been updated and the new price target is $52.86.
Jeff Sherman

Tuesday, June 16, 2015

Kinder Morgan Inc.

Shares of KMI have been trading weakly over the past few weeks, seemingly in accordance with the announcement of the Fed's expectations to raise interest rates. The fear of rising interest rates has tempted investors to get rid of their high-yield equity investments, such as Kinder Morgan. This sell-off really doesn't make sense because long-term investors should be excited about the prospect of higher future rates. Once the commotion surrounding this hike seems to settle, Kinder Morgan should be at a price that will present investors with a golden buying opportunity. Secondly, shares have been trading down due to a couple bearish articles negatively impacting investor sentiment towards the company. Nothing has changed with Kinder Morgan as far as the investment thesis goes, and there is no doubt that KMI will generate substantial excess coverage to cover its dividend distributions at year end. Kinder Morgan's cash flows are highly predictable and of low risk. A problem that some investors have is with the $40B in debt on the company's balance sheet. I contend that KMI is definitely not over-levered since the company's equity value currently stands at $84B. In response to the recent slide I am lowering my price target to $46.19, which represents a ~17% upside from yesterday's $39.46 close. I would suggest doubling down on our position if KMI drops below $38 because I believe investors have overreacted to the news about interest rate hikes, along with the fact that the Street has their price target for the stock sitting at $47.50. -Eric Cohen

Sunday, June 14, 2015

Spectrum Brand Holdings

Spectrum Brand Holdings (SPB)

At the end of May, Spectrum Brand Holdings closed at $96.65. Since then they have decreased $0.37 leaving them at a price of $96.28, demonstrating a relative stability in the stock. Given the current volatility of our markets and the diversified nature of this stock, this minimal decrease in stock price is to be expected and doesn’t in itself hold any indicative any negative signs for this company. Since our purchase of the stock on March 3rd, it has increased in value by $2.30.

SPB is diversified across various products and brand names allowing a lot of their unsystematic risk to be diversified away. Recently SPB has increased their consumer diversity by adding Armored AutoGroup Parent Inc. to their product line. Spectrum Brand Holdings still holds true to our thesis of them having a great reputation, loyal customers and diversified product line. This assures investors like us they are a safe company that will flourish with a good economy. 

Inter Parfums (IPAR) (Two Weeks June)

            So far in the month of June Inter Parfums is up 3% since the previous monthly write up. A solid earnings release as well as promising company guidance has pushed this stock on the rise. The stock is currently priced at $34.10; considering our model’s price target of $41 there is still plenty of upside. Inter Parfums still stands in line with guidance with no public statements stating otherwise. I also believe the current state of the economy with employment rates on the rise puts consumer spending in a great position allowing for growth in this company.
Current price as of 6/14/15 $34.10 (-.87%) on the day.

Marathon Oil Corporation

Since the first of June, MRO has fallen 2.21% ending Friday off at $26.49. The drop in the stock price follows the news that OPEC will continue to maintain their target production level of $30 million dollars a day.  With this being said, the U.S. continues to cut production levels, with the rig count being half of what it was at this time last year. Still, the U.S. has just passed Russia as the biggest oil and natural gas producer in the world, as congress considers legislation to permit the export of crude oil from the U.S. Another supply increase to look out for is the possibility of Iran producing gas again, as it is going to European energy giants asking for the $100 billion needed to rebuild its oil industry. However, Iran will not have a large effect on the global supply for a couple years.

Analysts covering MRO have an average price target of $34.00. I believe the stock should be held, as it still rests at 3.8% above the buy-in price. Analysts continue to upgrade the stock, and predictions for the next earning update keep looking better. Although oil prices have the possibility of falling, legislation allowing for the exportation of oil will be a big win for MRO.

VMW Bi-Weekly Blog

VMW Bi-Weekly Blog

VMWare (VMW) opened June trading at $87.96 and closed on June 12th at $88.91. The stock has been incrementally climbing in value since the stock's purchase in April. VMWare still has room to run in my opinion and that is backed by VMWare's overwhelming presence in the virtual technology space. The company's strong technological management skills and innovation leads me to believe the current price target for VMWare of $95.05 is fair and I believe the company will post strong second quarter figures and will push the stock very close to our price target.

Google Bi-Weekly Blog

Google Bi-Weekly Blog

Google's two stocks (GOOG) (GOOGL) have not made significant gains since June's opening. GOOGL opened the month at $547 and closed on June 12th at around $549 while GOOG opened at around $531 and closed during that same time at about $534. Seeing no significant gains in either stock. The stock's performance has been relatively unimpressive. Neither of the stock's are trading near their 52 week high which causes some reason for optimism. However I believe that our current price target for Google's class C shares of $649.86 is unwarranted. A more realistic price target in my opinion would be near $610. My opinion is backed by the fact that Google has been declining in its ROA over the past 5 years and for FY 2014 was at 12% - a trend displayed by companies that signify a slowdown in growth. After Q2 earnings we will have to revisit our valuation for the price target and conjure one that would be more appropriate given today's performance by Google's stocks.